With Argentina’s national debt high on the public agenda in recent months, this week it was the turn of the nation’s provinces to take their moment in the spotlight.
Buenos Aires Province Governor Axel Kicillof told bondholders that his region could not pay a US$275-million debt at the beginning of the week, while at the other end of the week he was joined by the Patagonian province of Chubut. Its authorities warned yesterday of a similar inability to pay, seeking to “reprofile” it, while former Economy minister Hernán Lacunza (who coined the word “reprofile”) joined the blame game.
Even if Chubut’s debt payment falling due this month seems modest when compared to Buenos Aires Province – US$12.5 million as against US$275 million – the province’s difficulties seem genuine enough.
Chubut’s bid to reschedule its debt is accompanied by freezing wages for the first six months of the year, thus prompting trade unions to call a general strike with ATE state workers threatening to stop work for the entire length of the freeze.
The southern region’s potential default comes just a week after the national government advanced one billion pesos to alleviate its crisis. The provincial Economy Ministry yesterday said that salaries and pensions alone were 120 percent of the revenues from oil and other royalties.
Both Kicillof and Chubut Governor Mariano Arcioni have in common requiring the assent of at least 75 percent of bondholders to roll over debt (by January 22 in the case of Buenos Aires Province). Kicillof on Thursday questioned this percentage requirement as “very demanding.”
LACUNZA JUMPS IN
After Kiciloff continually blamed his predecessor María Eugenia Vidal for his debt woes, Lacunza (her economy minister until last August when he moved to the national arena) sprang to her defence last Thursday, arguing that provincial red ink was worse when the Juntos por el Cambio governor replaced Peronist Daniel Scioli in late 2015 and that the Vidal administration had left enough funds to cover immediate needs.
The ex-minister quantified current provincial debt at US$11.16 billion as against US$11.2 billion in 2015. He also said that the Vidal government enjoyed lower interest rates and longer payment terms by commanding more confidence. Lacunza also implied that Kicillof only had himself to blame for his problems since “credit always looks ahead, not back.”
In blaming Vidal for leaving him an “unsustainable” debt, Kicillof failed to mention that the payment falling due on January 26 stemmed from a 2011 bond issued by Scioli to help him meet teacher pay demands.
Kicillof’s rollover demand came on Tuesday, soon after Economy Minister Martín Guzmán last Sunday announced that there would be no national aid, thus reversing a pledge made just before the weekend.
Despite Kicillof’s tough talk, his province last week started talks with some creditors as officials seek their blessing on a plan to delay the payment.
The provincial argument is that delay would be a lesser evil to default, allowing the province, the federal government and creditors more time to come up with a comprehensive rescheduling plan.
The province’s announcement Tuesday that “limited financial resources” means it needs to push back the principal payment to May 1 from Jan. 26 surprised some traders who had expected the federal government to offer a bailout. The bonds fell, suggesting bondholder reluctance accept a delay in payment without additional compensation.
Kicillof’s confrontational attitude is seen as an early test for investors as President Alberto Fernandez formulates his own strategy for seeking debt relief.
The province’s “economic team has decided to utilize a bit of fright-night hardball by allowing Axel Kicillof to play some brinkmanship,” said Joaquin Bagues, head of strategy at Portfolio Personal Inversiones in Buenos Aires, in an interview with Bloomberg.
“Axel could use the pressure of an imminent default to propose a comprehensive debt exchange,” he added.
The debt crisis began on Monday after Guzmán said the government won’t bail out the province. Fernandez repeated those comments late Monday.
The province, home to about 40 percent of Argentina’s population, owes investors a total of US$571 million this month and faces another US$700 million in principal payments in June, according to Walter Stoeppelwerth, chief investment officer at Portfolio Personal Inversiones in Buenos Aires.
The overseas bonds due in 2021 had been among the world’s top performing securities in the past few months, returning 54 percent from August until January 8, when the province reached out to creditors to seek informal talks.
The province, like the sovereign and other Argentine issuers, has been slammed by sluggish economic growth, fast inflation and a plunge in the peso that made payments in dollars more expensive. The government has already unilaterally pushed back maturities on some local shortterm notes to cope with the shortfall and implemented capital controls to prevent hard currency from leaving the country.
Fernández said last Sunday that the national government plans to have its debt situation figured out by March 31, declining to go into details, The government has asked for proposals from creditors and advisers on how to make its debt load sustainable and will seek to alter a record US$56-billion agreement with the International Monetary Fund.